AHDB Pig Market Weekly

AHDB Pig Market Weekly - 3 April 2014

According to the latest figures published by USDA, the US pig herd on 1 March fell by 3% compared with a year earlier to 62.9 million head. This was also 5% down on 1 December 2013.

Contraction in the US pig herd

The latest numbers contrast with the normal seasonal trend, whereby the pig herd would normally rise in the first quarter of the year. The large decline in US pig numbers reflects the impact of the PED virus on the country’s pig industry. While the first case was recorded in April 2013, the situation deteriorated during the winter, so the impact has been particularly felt in the latest quarter. There was a 4% fall in the number of pigs available for slaughter, with drops across all weight bands. In contrast, breeding pig numbers were marginally up on a year previously, at 5.85 million head.

Sow farrowings for December to February stood at 2.87 million head, 3% higher than the same quarter last year. However, the average number of pigs weaned per litter fell by 5% to 9.53 so the pig crop was down by 3% on the year before. Since productivity has been rising consistently by around 0.2 pigs per litter annually, this suggests an average loss of 0.7 pigs per litter across the whole national herd due to PEDv (and other disease issues). Looking ahead, there is little sign that PEDv is hitting the medium-term confidence of the US pig industry, as producers intend to farrow 2.88 million sows during March to May, 2% up on the actual farrowings in 2013. Intended farrowings for the summer quarter are also 2% up on the year, at 2.96 million sows.

Estimating the effects of PEDV in North America

Rabobank has recently published a report estimating that the ongoing outbreak of PEDv will lead to a 9% fall in US slaughterings in 2014, with increased slaughter weights meaning that pork production would be down by 7%. The impact of the disease is projected to peak in September, when slaughterings might be as much as 25% lower year-on-year. BPEX has now undertaken its own analysis of the potential impact, which suggests a lower, but still significant, effect on production. This is based on published information and evidence gathered by BPEX Head of R&D, Derek Armstrong, on a recent fact finding visit to North America.

Based on our analysis, the estimated impact of the disease in 2014 will be a shortfall of up to 7-8 million slaughter pigs. This is equivalent to around 7% of last year’s throughputs and would mean a fall in pork production of about 3% for 2014 as a whole. We expect that the impact on slaughterings will continue through much of 2015, as further cases are likely next winter. This analysis is largely supported by the USDA Hogs and Pigs report. The fall in the number of pigs weaned per litter represents an average loss of around 0.7 pigs per litter across the whole industry. If replicated across a whole year, that would be equivalent to a shortfall of about 8 million pigs. However, bearing in mind the likely seasonality of the outbreak, the true shortfall would likely be smaller than this.

The shortfall in US production and the resulting rise in prices, which have increased by around 50% since the start of the year, will inevitably hit US exports. This should create opportunities for EU exporters, given the US is their main competitor on many key markets, helping to mitigate the impact of the Russian ban on imports of EU pork.

BPEX will keep the situation in the US under review and will carry out further analysis of the likely impact of PEDV as more information becomes available. Results will be published through the BPEX website and future editions of Pig Market Weekly.

UK pig prices

The EU-spec DAPP remained well balanced for the week ended 29 March, at 162.84p per kg, although this was almost 5p above its level a year earlier. Supplies reached their lowest point since the Christmas holiday period. Although throughputs were up 8% on a year earlier, that was a short week due to the Easter holidays. The stabilisation in pig prices can partly be attributed to the recovery in EU pig prices of late, while there has reportedly also been some improvement in domestic demand. Carcase weights for the week ended 29 March fell marginally to 80.56kg but this was over a kilo higher than same week in 2013, as the seasonal fall in weights is still not apparent.

The price of a 30kg weaner fell to £55.28 per head for the week ended 29 March. This was £1.50 per head lower compared with the previous week but is within the range of prices recorded so far this year. The latest trend contrasts with seasonal expectations, whereby weaner prices typically edge up during this time of the year. Nonetheless, prices remained £7 per head above last year’s level for the same week. Similarly, the price of a 7kg weaner fell marginally (down 64p) during the same week to £40.21 per head.

Producer margins tight again

Latest provisional AHDB/BPEX estimates for the cost of pig production show that producers’ margins are becoming tight again. Average production costs in March are estimated to be 160.5p per kg, around 4p higher than revised estimates for February. This comes as cereal and oilseed prices have risen over recent weeks, partly in response to the situation in Ukraine. At this level, production costs are only around 2p per kg below the current level of the DAPP, meaning producers are making an average of only around £2 on every pig sold. Costs remain lower than they were a year ago but have risen significantly since the autumn.

Estimates of production costs for recent months have been revised upwards following the receipt of new physical performance data for the whole of 2013. While this showed further improvements in breeding herd productivity, there was a worsening of feed efficiency in the finishing herd, coupled with an increase in mortality rates. This is likely to be attributable to the difficult weather conditions of the past year, particularly the hot weather over the summer, and changes to feed rations due to low supplies of UK wheat. The new data mean that more feed will have been used than previously thought, the main factor pushing costs higher. Some financial data has also been updated but the impact of this is much smaller, given that feed is by far the largest component of costs.

Further fall in EU pig meat consumption

Latest AHDB/BPEX estimates, based on EU production and trade, show that supplies of pig meat for consumption in the EU fell further in 2013. Per capita consumption was estimated to be 40.0kg, down 300g compared with 2012, as lower production pushed prices higher. Consumption is now over 3kg per person below its level in 2007, as the difficult economic climate continues to impact on demand. As well as falling production, robust demand from export markets meant that there was a slight increase in the share of production destined for non-EU consumers.

Levels of consumption of pig meat vary widely across Europe. The population of the UK generally eats less pig meat than in most other Member States, with average consumption falling to 24kg in 2013. This reflects the relatively high consumption of other meats in the UK. Across most of the rest of Europe, pig meat is the leading source of protein and consumption levels are higher. Among the larger Member States, consumption was highest in Austria, Germany and Spain. In each of these, consumers, on average, ate more than twice as much as UK consumers, at over 50kg of pig meat per person.

Feed market update

UK May-14 feed wheat futures settled at £165/t on Tuesday, down £4.80 on the week. Nov-14 futures have also been travelling downwards over the week, testing the £155/t level on Tuesday and Wednesday. While the wheat figures in the USDA planting intentions and stocks surveys caused little surprise in the market, the maize stocks and plantings figures were both lower than the market expected. Maize markets have moved upwards in response but wheat prices have eased as the figures suggest that feed wheat demand has substituted into maize more than was anticipated. Few new developments have come out of Ukraine this week, putting further bearish influence on markets. Exports and plantings are continuing at a strong pace and the lack of serious trade sanctions against Russia, so far, may have allayed fears of wider market disruption, to some extent.

Chicago May-14 soyabean futures settled at a contract high of $545.40/t on Tuesday, due to the on-going tightness in US soyabean supplies. US stocks were more or less at the market’s expected level and the underlying factor influencing prices remained the tightness in old crop supply, despite a slight slowing of the pace of exports. The completion of the harvest of a potential record South American crop in the next few months is likely to relieve the current pressure on supplies and could see prices move down.

To read more about the latest developments in the feed market click here.

Dutch pork exports lower

At 717,400 tonnes, Dutch exports weakened by 4% in 2013 compared with the previous year. Exports were down even more sharply compared with 2011, by 12%. This was a result of lower domestic production in the Netherlands, which was also down by 4% on 2012. The majority of pork exports were destined for the EU market, where Italy was the primary buyer. However, that country reduced purchases by 2% on the year. Supplies to Germany and the UK were also down by 16% and 12% respectively. Amongst the main markets, Greece was the only member state to take more Dutch pork. This meant that Greece overtook Germany as a market for Dutch exports for the first time. The Netherlands exported 2% more pork to non-EU countries in 2013. Exports to Russia more than trebled, as other suppliers were affected by import restrictions, whereas supplies to Hong Kong increased by just 1% on a year earlier. The value of Dutch pork exports in 2013 amounted to €1.6 billion, down 1% on 2012.

One of the reasons for lower domestic pork production in the Netherlands was a 12% increase in the number of live pigs exported, to 10.8 million head. Increases were recorded from all major EU buyers, including Germany, Belgium and Poland. To some extent, this growth replaced meat exports to the same countries. The rise was mainly down to more weaners being exported, while slaughter pig numbers were little changed.

EU weaner prices holding up

Given the sustained fall in EU pig prices since the summer, average prices for weaners have held up well, remaining close to year earlier levels. Tight supplies and relatively low feed prices have helped to support demand from finishers, despite the uncertain finished pig market. Having dropped slightly during the autumn, prices picked up again from mid-November onwards; this is the normal seasonal trend, in anticipation of a strengthening pig market in the spring. The upward trend was curtailed by the sharp fall in the finished pig price following the Russian ban on EU exports. However, despite this, there has only been a limited fall in weaner prices, with the average only briefly dropping below €50 per head.

Perhaps surprisingly, the Polish weaner price has remained relatively stable so far this year. Although there was a fall immediately after the ASF cases were reported, this followed a significant rise the previous week and prices were only a little lower than their level through most of 2013. The biggest impact appears to have been on prices in the EU’s two main exporters of weaners, Denmark and the Netherlands. Prices in the former fell from around €45 per head to just over €40 in five weeks, although they have since recovered some ground. Dutch prices experienced similar trends. Elsewhere, prices were broadly stable in most other key member states.